Provisions for employee bonuses to be granted on a discretionary basis are
common in employment contacts. In Daniel John Brader and others v
Commerzbank AG  SGHC 284, the Singapore High Court had the
opportunity to consider the question posed above under circumstances where
the employment contracts of the plaintiff employees contained discretionary
bonus provisions but the employer had promised retention bonuses in an
announcement made during a town hall meeting. The Singapore High Court
held that the announcement constituted a free-standing contractual
entitlement and declined to consider the more interesting issue of whether an
employee can have a legally enforceable right to a discretionary bonus.
Dresdner Bank AG (“Dresdner Bank”) was a bank incorporated in Germany.
It had a Singapore branch (“DB Singapore”), and within DB Singapore, a
global investment banking division (which was not a separate legal entity)
known as Dresdner Kleinwort or DKIB. Dresdner Bank was originally a wholly
owned subsidiary of Allianz SE (“Allianz”). It was subsequently sold to
Commerzbank AG (“Commerzbank”) and all the assets and liabilities of
Dresdner Bank passed to Commerzbank from 12 January 2009. This resulted
in Commerzbank being named the Defendant in the suit.
The Plaintiffs are 10 employees who used to work in DB Singapore and within
In early 2008, a decision was made to separate Dresdner Bank’s investment
banking and commercial banking business as a prelude to exiting the
investment banking business, either by selling DKIB, dramatically reducing the
size of DKIB’s operations or by winding DKIB down. This decision was
subsequently made public.
The Plaintiffs claimed that DKIB’s employees feared for the future of their
careers as the new owners were not likely to retain existing employees and
there would be no work for them if DKIB were to be wound down. This
resulted in the employees becoming restless with morale and motivation
deteriorating drastically; some employees had in fact tendered their
resignations. In order to address this issue, the then Chief Executive Officer of
DKIB, Dr Stefan Jentzsch, announced a retention plan to DKIB’s employees
during a business update (the “Town Hall Meeting”) on 18 August 2008 (the
“18 August Announcement”). It was not disputed by the parties that
statements to the following effect were made:
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a) there would be a minimum bonus pool of €400 million for 2008;
b) this represented a reduction of approximately 25% from the bonus pool in 2007;
c) there was potential for the size of the pool to be increased if certain targets were exceeded; and
d) the announcement did not give rise to individual guarantees and the pool would be allocated on a discretionary basis by reference to individual performance.
Subsequently, further statements were made by Dr Jentzsch in later town hall meetings and by the HR department of DKIB in intranet postings that were consistent with the 18 August Announcement.
Shortly thereafter, in December 2008, a letter was sent to all DKIB employees who were eligible to be considered for discretionary bonuses stating, amongst other things, that:
a) a discretionary bonus for 2008 had been provisionally awarded at a certain sum for the employee in question;
b) the provisional award was subject to review in the event of certain material adverse changes in DKIB’s revenue and earnings as against the forecast; and
c) the employee would receive a detailed statement confirming his final bonus award in February 2009.
On 18 February 2009, the management of Commerzbank (after acquiring Dresdner Bank from Allianz) sent an email to all Dresdner Bank employees noting the difficulties faced by both Commerzbank and Dresdner Bank over the past year and announced that no bonuses would be paid for 2008. This was followed shortly by an email from Mr. Michael Reuther (who had then replaced Dr Jentzsch as the new Chief Executive Officer of DKIB) to all DKIB employees announcing that the provisional bonus awards which were previously announced by DKIB would be reduced by 90% pro rata.
The Plaintiffs then commenced an action to claim for either the balance 90% of their provisional bonus awards or alternatively, damages.
The Parties’ Position
The Plaintiffs relied on various grounds in support their claim including:
a) Dr Jentzsch and other senior employees of the Defendant had made contractually binding promises on 18 August 2008 (and on subsequent dates) that there was in existence a bonus pool with a guaranteed minimum of €400 million that would be paid out regardless of DKIB’s financial performance (the “Separate Contract Argument”);
b) the Defendant’s failure to pay their 2008 bonuses in full in accordance with its promises to them was perverse, arbitrary, capricious or inequitable. Alternatively, they contended that the failure by the Defendant to pay the 2008 bonus constituted a breach of its implied duty to behave in a way which preserved the trust and confidence that an employee should have in his employer (the “Breach of Trust and Confidence Argument”); and
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c) even in the absence of the 18 August Announcement, the bonus clause in their contracts of employment granted them a contractual entitlement to a discretionary performance-based bonus each year. This was a legally enforceable entitlement even though the amount of the award had to be determined by an exercise of discretion on the part of Dresdner Bank, which discretion had to be exercised in a bona fide and rational manner, taking into account proper factors (the “Entitlement to Discretionary Bonus Argument”).
The Defendant argued that:
a) none of the statements relied upon by the Plaintiffs were intended, or could reasonably be taken as intended, to create legal relations. In any event, even if the statements could constitute an offer capable of acceptance, no contractual rights arose as there was no acceptance, consideration or sufficient certainty in respect of the terms;
b) there was no breach of any implied term of trust and confidence as it and Dresdner Bank had acted reasonably and with proper cause in light of the difficulties and losses they were facing at that time;
c) there was binding authority in Singapore1 that unless bonus was expressed to be guaranteed, an employee could not claim to be legally entitled to a bonus, the granting and quantum of which were entirely at the discretion of the employer.
The High Court’s Decision
The Court considered the Separate Contract Argument in detail and held that as the 18 August Announcement satisfied the elements with regard to the formation of a binding contract between parties (discussed below), it constituted a separate and distinct contract from the Plaintiffs’ employment contract. In this regard, the Plaintiffs are entitled to payment of the balance 90% of the provisional bonuses as damages for breach of contract. This is despite the fact that in the Plaintiff’s employment contracts, it was stated that Dresdner Bank retains the discretion to pay variable bonuses to the Plaintiffs.
Did the 18 August Announcement constitute a binding contract?
In respect of the elements required for the formation of a binding contract, the Court found as follows:
a) Offer – The 18 August Announcement was an unilateral contract and a promise on the part of DKIB to pay the relevant employees their bonuses from a minimum bonus pool in return for them to continue their employment and performance at DKIB.
b) Acceptance - Although the Plaintiffs did not communicate their acceptance of the 18 August Announcement to Dresdner Bank, there was a waiver of the requirement of acceptance which was often part and parcel of an unilateral offer. In this case, should the Plaintiffs continue their employment and forbear from resigning, Dresdner Bank would come under an obligation not to revoke the offer;
1 Latham Scott v Credit Suisse First Boston  2 SLR(R) 30 at .
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c) Consideration - The requirement of consideration was satisfied in the form of forbearance from resigning on the part of the Plaintiffs. By remaining employed, the Plaintiffs conferred on Dresdner Bank a practical benefit in the form of employee stability and the ability to continue operating as a going concern during a period of uncertainty, which was what the bank sought to achieve by introducing the minimum bonus pool;
d) Intention to create legal obligations - An inference of an intention to be bound could be drawn from the subject matter of the 18 August Announcement (which related to the remuneration of an employee by the employer) as such assurances would unlikely be made lightly as it concerned an important matter. Based on the facts of the case, Dresdner Bank was searching for a buyer of its investment bank business but the value of the same would have been greatly reduced if it could not be sold as a going concern. The 18 August Announcement was unlikely an usual update on the accruals to the bonus pool; something more concrete would have been necessary to incentivise employees to remain with Dresdner Bank;
e) Certainty - Although there might be gaps in the terms of the contract, such gaps could be filled by a previous course of dealing between the parties or by a trade practice or where a definite formula existed. In this case, potential gaps, such as the quantum of bonus for each employee not being specific, could be filled by the bank’s past conduct of allocating the discretionary bonuses.
As the 18 August Announcement fulfilled all the elements with regard to the formation of a valid contract, based on well established principles of contract law, the Court found that it constituted a free-standing contract (which is a separate contract from the Plaintiff’s employment contracts) and the Plaintiffs could therefore enforce the same.
Breach of Trust and Confidence Argument
The Court accepted that, under Singapore law, there was an implied term that an employer should not without reasonable and proper cause conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.
However, the Court held that in order to succeed in a claim for breach of trust and confidence, it had to be shown that:
a) the impugned conduct of the employer was without reasonable and proper cause; and
b) such conduct was both calculated and likely to destroy or seriously damage the relationship of trust and confidence.
Notably, the Court stressed that it would take quite extreme behaviour on the part of the employer to satisfy these requirements.
Based on the facts of the case, the Court found that even if it was dishonourable for Dresdner Bank to break its promise with regard to the payment of the bonus from the minimum bonus pool, it had compelling reasons for doing so, such as, the fact that the financial industry was under severe pressure at the material time and Dresdner Bank suffered significant losses in 2008.
As there were reasonable and proper causes for Dresdner Bank not to follow through with the 18 August Announcement (even though it constituted a
5 Are there circumstances in which an employee can have a legally enforceable right to a bonus? January 2014
breach of contract), the circumstances were such that the relationship of trust and confidence could not be considered to have been destroyed or seriously damaged from an objective point of view. The assessment of whether there had been a breach of this implied term should not focus on the subjective unhappiness of employees to the exclusion of the pressures that employers face. Accordingly, the Court found that there was no breach of the relationship of trust and confidence.
Entitlement to Discretionary Bonus Argument
The Court found that the 18 August Announcement superseded whatever the existing contractual position might have been for that year and sufficed to establish a free-standing contractual entitlement. Accordingly, the Court declined to consider the issues of what duties, if any, an employer must satisfy in deciding whether to award discretionary bonuses and, if so, how much.
This case demonstrates possible liability which may attach when an employer communicates or makes representations of additional payments (such as bonuses) to their employees. Such communications or promises may be enforceable as a free-standing contract and could potentially override initial contractual provisions, including provisions in contracts of employment which clearly state that bonuses are strictly granted at an employer’s sole discretion.
It highlights the need to ensure clarity in such communications and to keep proper record of communications particularly if the communications concern important matters such as remuneration of an employee by the employer. In this case, the Court considered that it was striking that the defendant employer was unable to produce any witnesses to support its contentions regarding the contents of the 18 August Announcement. The Court therefore relied on the recollections of Dr Jentzsch and the plaintiff employees and found that, although their recollections had been rendered imperfect by the passage of time, their evidence was unwavering on the understanding of the message of 18 August Announcement, namely that if they remained in DKIB’s employment until the bonuses were paid out, they would share in the minimum bonus pool.
Unfortunately, the Court did not have occasion to make a definitive pronouncement of the more interesting issue of whether an employee can have a legally enforceable right to a discretionary bonus, and in particular, the related issue of whether an employer must satisfy any duties in exercising its discretion to award discretionary bonuses, for example, if the employer is under a duty to act in a bona fide and rational manner. This issue is therefore currently still left open.
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